Two million homeowners over 55 plan to downsize as they look to fund retirement and help their children

More than two million people over the age of 55 intend to raise extra cash for their retirement and for one-off purchases by downsizing to a smaller property.

Homeowners are hoping to raise more than £85,000 on average by selling their homes and buying a cheaper property with the proceeds, a survey by Prudential has found.

More than three-quarters of over 55s who plan on selling hope to release equity through the sale, with 42 per cent saying they will use some of this to splash out on a one-off purchase.

Downsizing: Around 2.3million over 55s say they plan on selling their family home to move into a smaller property.

But most plan on using the equity to fund their remaining years, with 41 per cent saying they would save or invest the cash they raise, while 29 per cent will put some into their pension pots - attracting tax relief in the process.

One in eight said they would use some of the money to help their children to get on the housing ladder, while 15 per cent said they would help their children with other financial issues.

But Vince Smith-Hughes, of Prudential, warned that getting a lump sum from the sale of the house is not guaranteed, with the report highlighting that more than a quarter of homeowners over-55 said they are deterred from trading down because of the total bill for buying, selling and moving home.

He said: 'Homeowners who have been lucky enough to gain from the long-term strength of the housing market should exercise caution if they are banking on downsizing to be the magic wand that provides a decent retirement income.

'In some cases the amounts of cash realised can be lower than expected and the cost of moving house should not be underestimated.

'The changes to pensions and how people can take their retirement income announced in the Budget in March will provide savers and retirees with increased choice.

'Our research also shows that homeowners are thinking carefully about what to do with the even greater degree of choice provided by expected gains from the value of their home. Faced with all these potential decisions, people approaching retirement should seriously consider taking professional financial advice.

'Irrespective of the Budget changes and the strength of the housing market, the fundamental principle remains true - the best way to secure your desired level of retirement income is to save as much as possible as early as possible in your working life.'

There have been a rise in the number of over-55s turning to lifetime mortgage products in the last couple of years, with the equity release market recently returning to pre-financial crisis levels.

Those who don't want to leave their family home or can't make as much as they'd like by downsizing have been turning to the products, which sees a loan taken out against the value of their home which is paid back when they die.

The problem with this is that the loan comes with compound interest that means a much larger amount is taken when the property is sold upon the homeowners death, though there are products that allow you to pay off interest as you go, protecting the inheritance value in the property.

But many who can get a decent sum for their home and can comfortably live in a smaller property see downsizing as a more preferable option.

Three in five of the downsizing over-55s said they are attracted by the convenience of running a smaller home, whereas just a third would do it because they needed to raise money, while one in five want to save money on the cost of running a home.